Telecom 'fast, fair and fearless' restructure on the way

Telecom 'fast, fair and fearless' restructure will have
'material' impact

By Paul McBeth

Feb. 22
(BusinessDesk) - Telecom Corp's annual earnings face a
material impact from a major overhaul of the business to
become a data-driven and mobile-focused telecommunications
operator, stripping out more costs and getting away from its
old structure.

Chief executive Simon Moutter told an
analysts' briefing that Telecom's structure is still based
on its vertically integrated history as both network owner
and retailer, before the split that saw network company
Chorus established as a standalone entity.

Telecom now
needs a rapid change to get the company on track towards
sustainable profitability, Moutter says. That could have a
material impact on the company's earnings, with another
update promised at an investor day in May.

"We must have a
competitive cost base to succeed in today's fast-changing
marketplace," Moutter said. "We are talking about the
potential for one-off restructuring costs and portfolio
formation that can crystallise one-off costs in the period."

The phone company has focused on stripping out costs for
several years as customers' expectations for cheaper
services coincided with heavier regulation of monopoly
elements of the network that Telecom now no longer owns.
Since shedding the Chorus network unit at the end of 2011
and the relevant regulatory regime, the company is now
looking at how to position itself in the new marketplace.

"We're shifting from a company focused on building things
to a company focused on its products and services," Moutter
said.

Telecom firmed up its annual earnings guidance,
saying adjusted ebitda will probably be between $1.04
billion and $1.06 billion, before any one-off charges from
the restructuring. That's down from $1.09 billion a year
earlier, and is at the lower of the previous guidance of
flat to single digit decline in annual adjusted
ebitda.

Moutter said Telecom is giving up margin at the
expense of maintaining its market share amid intense price
competition for broadband customers, something it can't
afford to keep doing.

"We're not going to downplay the
change, nor sugar-coat the impact on a number of our
people," he said. "We will do things fast, fairly, and
fearlessly."

Moutter said there is potential for
write-downs if Telecom exits any of its businesses and won't
simply be focused on labour costs, although hundreds of jobs
could be at risk.

"We want to optimise the business around
areas of highest value to the customer," he said.

Telecom
today eked out a 3.7 percent increase in adjusted earnings
before interest, tax, depreciation and amortisation, which
rose to $506 million in in the six months ended Dec. 31. The
company's sales fell 8.5 percent to $2.14 billion, with
mobile the only unit to report a gain, rising 2.2 percent to
$455 million, making it the biggest earner for the
company.

Statutory net profit plunged 84 percent to $162
million, or 9 cents per share, from a period when
shareholders reaped $877 million from the distribution of
Chorus shares. Stripping out the Chorus effect, profit rose
26 percent.

The shares rose 1.1 percent to $2.23 today.
The stock is rated an average 'hold' based on 10 analyst
recommendations compiled by Reuters, with a median target
price
$2.30.

The Wellington-based BusinessDesk team led by former Bloomberg Asian top editor Jonathan Underhill and Qantas Award-winning journalist and commentator Pattrick Smellie provides a daily news feed for a serious business audience.

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